Budget deal impacts local cities, schools

NEW ULM – The compromise budget deal reached between Gov. Mark Dayton and the Democratic legislative majority on Sunday could impact New Ulm in many ways.

Although dramatically scaled back from Dayton’s initial proposals, the deal retains numerous campaign goals. The deal seeks to raise $2 billion in new taxes over the next two years to help solve the state’s $627 million budget deficit and restore funding to areas previously cut.The top 2 percent of Minnesota’s income earners will have increased taxes for couples earning more than $250,000 and singles earning over $150,000. Proposals like a sales tax for clothing are out, but increasing the cigarette tax from 94 cents a pack to $1.60 a pack is essentially guaranteed.

On the funding side, the deal seeks to add $725 million in funding for education – from preschools through colleges, with an emphasis on programs like all-day kindergarten. The deal adds $400 million in property tax relief by increasing state aid to cities, counties and schools with the intention of helping these groups reduce their local tax levies.

The City of New Ulm and area public schools have received significantly less state aid resulting in budget problems of the last few years. Both areas will get significant funding boosts under the budget deal.

For New Ulm, the $80 million increase in Local Government Aid will give the city $600,000 more for next year instead of the currently scheduled state funding reduction. Similarly, the tax proposal bills in the Legislature are carrying a reform to the LGA distribution formula, which was drawn up by a coalition of representatives from rural and metro cities. The formula benefits the metro area more in the long term, but rural cities get a boosted base level and incremental funding increases over many years. Most important, it simplifies the LGA formula so cities can take control of their budget by knowing exactly how much they will be allocated year to year.

Beyond the set targets, the budget deal also kept potential tax items like a gas tax and an alcohol tax on the table, though they remain unresolved.

The proposed 5-cent per gallon gas tax increase has been a hotly debated item as a point of division between Dayton and DFL lawmakers seeking to fix funding for the state’s transportation system. Dayton opposes the idea because he believes it lacks public support. DFL leaders in key committees have argued that it’s necessary to bring transportation funding to the level that has been needed for years.

The tax is specifically targeted as the funding source for the new “Corridors of Commerce” program, which seeks to help build economy boosting projects MnDOT had to forgo due to budget constraints. Highway 14’s four-lane expansion project has been heavily used as the prime example of project for this program.

The proposed alcohol tax would have a big impact on Schell’s Brewery, which could face up to $1 million to $2 million more in taxes. Advocates for the tax have argued it targets negative health consequences and public costs associated with excessive alcohol consumption. Minnesota’s breweries and other alcohol related industries have argued it will only result in passing the cost of the tax on to consumers.

Estimates for the alcohol tax suggest it could result in beer costing 7 cents more per drink, though the final increase could be less depending on numerous factors in how the distributors, brewers and businesses respond to the tax.